Bank X, based in Europe, is required to comply with Article 296 of the Capital Requirements Regulation (Regulation (EU) No 575/2013). Article 296 states that, in order to be able to mark OTC derivatives counterparty credit lines as ‘net’ (reducing balance sheet usage), sell-side firms must make written and reasoned legal opinions available to regulators which support the enforceability of close-out netting within relevant “netting agreements”.
In practice, Bank X must go much further than merely making legal opinions ‘available to regulators’. Instead, it must conduct a thorough review of the legal opinions which relate to each jurisdiction in which it does business. Combining the information gleaned from these reviews with data extracted from executed documentation, Bank X must then perform a netting determination for each of its counterparty pairings.
Bank X must also demonstrate to its regulator how the review process is kept up-to-date as legal opinions, regulatory requirements and the contractual relationship between counterparty pairings all change over time. This presents a significant resourcing issue.
Ark 51 can automate this entire process.
Ark 51 provides user-friendly summaries of industry standard netting and collateral opinions. Moreover, through its AI capabilities, Ark 51 can rapidly and accurately extract all of the data necessary to conduct a netting determination from executed counterparty documentation. Allying opinion analysis and contract data, Ark 51’s netting engine then makes real-time, dynamic netting determinations for all of Bank X’s counterparties.
A burdensome, manual process that once took days or even weeks can now be performed, and re-performed, within seconds – releasing internal resource to focus on other matters, streamlining the cost of maintaining regulatory compliance, reducing balance sheet usage and unlocking commercial opportunity.